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Negotiating in the Shadow of
Adhesive Arbitration
Jill I. Gross
Editors’ Note: “Bargaining in the shadow of the law” is a famous phrase that by now has passed into negotiators’ and particularly lawyers’ subconscious. Yet as the backdrop for setting norms and expectations in negotiation, case law has been largely supplanted in recent years by a plethora of standardized, unilateral contracts which propel anyone with a subsequent grievance toward a private, confidential arbitration proceeding—and increasingly bar such individual parties not only from airing their concerns in court, but from joining with others similarly situated in a class action. The result has profound consequences for many who are trying to negotiate redress for all sorts of contract violations. This chapter should be read in conjunction with Miller & Dingwall on Dispute Domains.
Dispute resolution scholars have long understood that negotiators bargain in the shadow of the law (Mnookin and Kornhauser 1979). In the transaction setting, negotiators structure deals and draft contractual terms to comply with the legal rules and regulations that govern those transactions. In the dispute setting, disputing parties who are not able to resolve their differences through a non-binding dispute resolution process such as negotiation or mediation will end up before an adjudicator (most likely a judge) who will decide their dispute and impose that judgment on them. Because some form of adjudication looms in the background if parties do not settle, “[l]egal and other norms affect the assumptions, expectations, BATNAs (Best Alternative to a Negotiated Agreement), and proposals of bargaining parties and hence shape negotiated outcomes” (Menkel-Meadow et al. 2011: 322).
Although, historically, most dispute negotiations took place in the shadow of litigation, the increasing use of pre-dispute arbitration agreements (PDAAs) in adhesive consumer, franchise, employment, and investor contracts means that more and more disputants in those settings are negotiating in the shadow of forced arbitration, not litigation. Those PDAAs typically are non-negotiable, take-it-or-leave-it clauses in a broader contract of adhesion governing the relationship between a weaker individual and an institution with far greater legal resources and (traditional) bargaining power. The PDAAs might also include a class action waiver, pursuant to which individuals waive their right to pursue any claims collectively with others similarly situated. Many PDAA signatories are not even aware that they waived their right to pursue claims in court (Sovern et al. 2015). And, the Supreme Court’s expansive interpretation of the Federal Arbitration Act ensures that those PDAAs are irrevocable and enforceable like any other contract (Gross 2015). As a result, parties with claims involving, for example, allegations of defective consumer products, deceptive advertising, fraudulent transactions, or wage and hour violations can attempt to settle or else must pursue arbitration of those claims pursuant to PDAAs. Filing those claims in court is not an option.
Bargaining in the shadow of mandatory arbitration alters the landscape for negotiators. How should negotiators adjust? Does the party that forced the arbitration on the unknowing (and possibly unwilling) have more bargaining power? How does this impact the calculation of the BATNA? Is the relative lack of process in arbitration relevant to the negotiators? This chapter explores how some of the fundamental tenets of negotiation discussed throughout this book (e.g. interests, power, aspirations, BATNA, zones of agreement) impact the negotiation differently when the parties negotiate disputes arising out of contracts of adhesion that contain a PDAA.
The Arbitration Alternative and Its Impact
In the dispute (as opposed to transaction) setting, typically the negotiating party’s BATNA is pursuing a victory in court, as the alternative to settling is continuing with the litigation. The best possible outcome of that avenue is a favorable judgment for the full amount of relief requested (whether it be maximum damages for plaintiff or dismissal with prejudice for defendant). Parties of relatively equal bargaining power (whether perceived or real power) weigh an offer on the table against the risk of a court-imposed outcome, and evaluate settlement proposals based on currently available information. Parties of unequal bargaining power negotiate either with deep skepticism about the likely outcome in....
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References
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Drahozal, C. R. 2008. Arbitration Costs and Forum Accessibility: Empirical Evidence. University of Michigan Journal of Law Reform 41(4): 813-842.
Gross, J. I. 2015. Justice Scalia's Hat Trick and the Supreme Court’s Flawed Understanding of Twenty-First Century Arbitration. Brooklyn Law Review 81(1): 111-148.
Gross, J. I. 2012. AT&T Mobility and the Future of Small Claims Arbitration. Southwestern Law Review 41: 48-85.
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Mnookin, R. H. and L. Kornhauser. 1979. Bargaining in the Shadow of the Law: The Case of Divorce. Yale Law Journal 88 (5): 950-997.
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